When Oregon voters voted last January to pass ballot measures 66 and 67, airwaves were awash in ads pushing the measure.
Political Ad: “Wall Street took billions in bailouts. To thanks us they jacked up our credit card rates and took huge bonuses. A lot of these same corporations only pay the $10 corporate minimum tax. They charge more than that in one late fee.”
The measures were part of a solution to plug a $4 billion budget gap.
Now 6 months after their enactment, and months after Governor Ted Kulongoski ordered across the board budget cuts, some are questioning whether the measures are helping or hurting Oregon’s economy.
Tara O’Keeffe grew up in the Klamath Basin tending to cattle and sheep on the family ranch.
She earned enough money on neighboring farms by weeding potatoes and lining bails of hay to put herself though pharmacy school. After graduation, when she wasn’t filling prescriptions, she was tinkering in her kitchen developing a new hand cream.
Tara O’Keeffe: “I did that because my father, being a cattle rancher, had severe split, cracked skin in both his hands and his feet. It was the result of the kind of work he did.”
O’Keeffe says she learned a hundred ways not to make hand cream, but when she finally got it right she heard so from her number one patient, her dad.
Tara O’Keeffe: “He called me in two days and said I don’t know what’s in this but this is working.”
Today, the O’Keeffe’s Company, maker of O’Keeffe’s Working Hands Crème, is a successful multi-million dollar business.
It’s carried across the country in Lowe’s home improvement stores.
In 2009, O’Keeffe was voted Oregon Small Business Person of the Year by the Portland district of the U.S. Small Business Administration. She employed a total of 20 people in at her production in facility in Sisters, Oregon. But earlier this year, O’Keeffe sold the company she built from the ground up.
The new buyer, the Gorilla Glue Company, moved production to Cincinnati, Ohio. O’Keeffe says she sold the business because of measures 66 and 67, which she says taxed the company’s profits leaving less money for the business to grow.
Tara O’Keeffe: “I do want to see my baby, O’Keeffe’s company global. I’m hoping that this company that now has my fourth child will be able to afford to do that.”
Measures 66 and 67 are almost always mentioned in the same breath, but they’re actually quite different.
Measure 66 raised personal income taxes on joint filers earning more than $250,000 a year.
Measure 67 raised the minimum tax on corporations from $10 to $150. It also changed the way some corporations are taxed.
O’Keeffe’s company was not affected under Measure 67. But it was set up as what’s called an S-Corp and the company’s profits were reported each year as personal income for O’Keeffe.
O’Keeffe says in the last few years, she did draw a salary for herself, but she contends most of those profits were re-invested in the business.
O’Keeffe says because she’s bound by a confidentiality agreement with the business’ new owners, she can’t give specific figures about the company’s profits or how much more she had to pay in taxes.
A November 2009 report from the State of Oregon’s Legislative Revenue Office estimated that of the roughly 38,000 taxpayers projected to see their taxes increase due to Measure 66, two-thirds of those will report some form of business income or loss either from an S-corp, a sole proprietorship or a partnership.
Bill Valentine is a financial advisor in Bend who represents mostly wealthy individuals. He says O’Keeffe’s situation isn’t unique. His company, set up as an LLC, is also affected by Measure 66. And, he says, so are many of his clients.
Bill Valentine: “People are fleeing the state. I’ve got clients that literally have already left or are in the process of seeking a dual residency between Washington and Oregon, Nevada and Oregon, Arizona, they’re simply leaving the state because they are paid a tremendous amount to do so.”
Josh Harwood: “We know, at least anecdotally and we don’t know to the extent that this happens but that some people do move for tax purposes.”
That’s Josh Harwood. He’s the Senior Economist with Oregon’s Office of Economic Analysis.
Harwood says because Oregon doesn’t have a state sales tax, it relies heavily on revenue from income tax.
It’s hard to estimate how much money Measure 66 will raise, he says, because income tax receipts from high earners are notoriously mercurial.
Josh Harwood: “You know most taxpayers have relatively stable income trends. They might move up and down a bit, but not a lot. But the really high-end taxpayers will have business ventures that go though other things and so one year they’ll be way up next year they’ll be back down to some level. And that volatility within that tax base is really the challenge in estimating the revenues.”
There are some business owners who say they have barely noticed the change.
Angela Dietrich owns a successful consignment store in Bend. She says the new tax measures have had minimal impact on her business.
Angela Dietrich: “The only way it’s affected us it that we’ve gone from the $10 minimum to the $150 minimum.”
Dietrich is referring to the increase in the business fee under measure 67. She says there were important reasons for the change.
Angela Dietrich: “Being a responsible business owner and member of this community, I mean it’s only fair for us to be able to give back and these programs that it’s going towards need to be funded.”
But financial planner Bill Valentine argues the measures failed to achieve their primary purpose, shoring up the state’s finances.
Bill Valentine: “Of course, if the point is well it was all for the greater good of financial austerity, we didn’t even get that. We’re still going to have to cut services. Kulongoski still came out and said everybody’s going to have to cut 9 percent out of their budgets. My kids still came home two days early from school.”
Oregon is looking at a $2.5 billion shortfall for the next biennium which runs though 2013. Scott Moore was the communications director for Vote Yes for Oregon, the ‘yes’ side of Measures 66 and 67.
Scott Moore: “If Measures 66 and 67 hadn’t passed, the crisis that we’re currently facing now would be a billion dollars worse.”
Measures 66 and 67 were projected to boost the income and corporate taxes by more than $700 million for the current two-year budget cycle, but state economists say they won’t know until October whether they’re on track to meet those targets.
Harwood says state economists are trying to analyze a number of different factors to determine whether measures 66 and 67 drove out businesses. They’re looking at driver licenses, income tax records, and residency status to see whether people left the state. But, he says they may not know the answer to that question for years.